Singapore Market Strategy - UOB Kay Hian 2024-04-15: Impact Of Escalating Middle East Tensions ~ Oil Prices The Key Worry

• While Middle East tensions have escalated in the past 72 hours, we believe that the situation remains fluid. Oil prices remain the key worry and could negatively impact Asian growth and thus Singapore’s open economy should it escalate past US$100/bbl.
• In our view, aviation stocks should be able to pass on any oil price related increases, while near-term sentiment for the upstream and offshore marine sector should remain positive.
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Escalation of Middle East tensions

• Middle East tensions have significantly escalated over 13-14 Apr 24 with Iran’s launch of attack drones and missiles at Israel on 13 Apr 24 in its first ever direct military assault on Israeli territory. This was in retaliation to Israel’s repeated strikes against Iranian leadership targets, both in and outside of Iran, and could result in tit-for-tat responses in the coming weeks.
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Oil prices are the key worry.

• In the immediate aftermath of the Iran attack, Brent oil prices briefly rose 1.5-2.0% to US$92/bbl. However, at present, it has retraced back to US$90 levels.
• The key concern is that, should tensions escalate and Middle East oil production and export infrastructure is compromised, or if sanctions are enforced on Iranian oil exports, oil prices could potentially spike into the US$100/bbl levels, pushing up inflation and negatively impacting a number of Asian economies.
• While OPEC has an estimated 4.3mmbpd of spare capacity, this will take time to bring online.

Potential negative impact for oil-sensitive listed companies.

• Read more at SGinvestors.io.

Adrian LOH UOB Kay Hian Research | https://research.uobkayhian.com/ 2024-04-15 SGinvestors.io

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